International Value Outpaces on Elevated Pricing Power

• Last month, the ALPS International Sector Dividend Dogs ETF (IDOG) outpaced broad international and US indices, returning 3.91%, kept afloat by impressive earnings and stronger pricing power which outpaced cost inflation. Despite global recessionary fears and economic headwinds, better-than-expected economic growth and above-consensus Company earnings have dampened inflationary pressures, which could lead to a continued recovery in deep-value international names.
  
  
• Leading IDOG’s Energy gains for the month of July, Aker BP ASA (AKRBP NO, 2.17% weight*), an oil and gas exploration and production company, rallied over 21% in July after raising full-year production guidance. The guidance raise came on the back of three new production wells which are expected to start producing later this summer. Another stand-out performer within IDOG’s Energy allocation was Orlen SA (PKN PW, 2.14% weight*), which gained 12.95% last month after Poland passed a draft bill that would hold the state agency liable for coal-fueled power assets. The bill is aimed to bring in additional financing for companies such as Orlen SA, where financial institutions are generally reluctant to finance coal assets. Adding to the recurring theme of Energy sector outperformance within IDOG, Woodside Energy Group LTD (WDS AU, 2.06% weight*) rose 11.67% on the month, moving higher after the West Australian Environmental Protection Authority dismissed appeals that looked to shut down Woodside Energy’s gas processing expansion. With the dismissal of appeals, Woodside Energy’s gas production lifespan could be extended nearly 50 years.
  
  
• Among IDOG’s country allocation, IDOG’s overweight towards Japan continues to pay dividends, with the country contributing the most in terms of overall contribution to returns last month. Japanese transportation service provider, Nippon Yusen (9101 JP, 2.08% weight*), and Japanese steel producer, Nippon Steel Corp. (5401 JP, 2.05% weight*), both saw gains driven by inflationary pricing trends in cyclical products, with the two Japanese companies returning 9.95% and 9.92% in July, respectively. Automobile and commercial vehicle manufacturer within IDOG’s US allocation, Stellantis NV (STLA US, 2.40% weight*), performed the best, returning over 17% last month after reporting better than expected first half results and reiterating its full year guidance. Stellantis’s results were driven by strong operating margins thanks to elevated pricing power and its order backlog in Europe. Lastly, continuing the trend of outperformance due to increased pricing power, French auto part manufacturer, Michelin (ML FP, 2.09% weight*), rallied 11.17% last month after reporting better than expected Earnings Per Share (EPS) on the back of stronger pricing which has outpaced cost inflation within its tire making business segment.

“With only modest inflation in Japan, interest rates remain low compared to other regions, where rates have risen sharply. As a result, the yen is one of the cheapest currencies in the developed markets, based on a real effective exchange rate. A weak currency could drive increased sales at Japan’s many export-oriented companies while also attracting inbound tourists.”

– JP Morgan Analysts, March 2023

Japanese Stocks Fight Back and Outperform

• Since 1990, the Japanese stock market was synonymous with low growth and stagnation - that was until this year. With a push from the Japanese government, new corporate governance rules have compelled company executives to care more about their stock prices in an attempt to bring investors back to the market. Year-to-date (YTD), the Nikkei 225 Index has outpaced the S&P 500 Index by nearly 800 basis points (bps), buoyed by an increase in consumer spending and a weakening Yen. Japan was one of the last countries to exit the pandemic, only opening borders in October of 2022, with Japanese consumers ready to spend, economic activity has increased. The increase in consumer spending resulted in a significant increase in gross domestic product (GDP), with the Japan Cabinet Office revising Q1 GDP to 2.7% year-over-year, nearly 1% higher than first estimated. Additionally, a weak Yen to begin the year boosted the country’s exports, which saw the Asian island experience a trading surplus for the first time since the middle of 2021, showing the continued recovery of Japanese businesses coming out of the COVID-19 pandemic. These factors, along with improving sentiment have led the country to significantly outperform other regions, YTD.

• Historically, Japan has been an export country and is currently the fourth largest trading partner with the United States. Coming out of the COVID-19 pandemic, Japan struggled with supply chain issues which are finally beginning to ease. The value of exports rose nearly 1.5%, with a total value of 43 billion Yen, turning positive for the first time since 2021. The surplus comes as a positive sign for Japanese businesses which continue to recover from the wake of the pandemic.

Source: Bloomberg L.P., as of 07/31/2023 

Performance data quoted represents past performance. Past performance is no guarantee of future results so that shares, when redeemed, may be worth more or less than their original cost. The investment return and principal value will fluctuate. Current performance may be higher or lower than the performance quoted. For current month-end performance call 1-866-759-5679 or visit www.alpsfunds.com. Performance includes reinvested distributions and capital gains.

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* Weight in IDOG as of 07/31/2023

Top 10 Holdings

As of 07/31/2023, subject to change

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Performance data quoted represents past performance. Past performance is no guarantee of future results; current performance may be higher or lower than performance quoted.

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The Fund is subject to the additional risks associated with concentrating its investments in companies in the market sector.

Diversification does not eliminate the risk of experiencing investment losses.

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The Fund employs a “passive management” - or indexing - investment approach and seeks investment results that correspond (before fees and expenses) generally to the performance of its underlying index. Unlike many investment companies, the Fund is not “actively” managed. Therefore, it would not necessarily sell or buy a security unless that security is removed from or added to the underlying index, respectively.

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Morningstar Developed Markets ex-North America Index: measures the performance of companies in developed markets ex-North America. It covers approximately 97% of the full market capitalization in the Developed Markets ex-North America. 

Nikkei 225 Index: tracks the performance of the top 225 companies that are listed on the Tokyo Stock Exchange. 

S-Network International Sector Dividend Dogs Index (IDOGX): a portfolio of stocks derived from a universe of mainly large capitalization stocks domiciled in developed markets outside the Americas (the “S-Network Developed Market (ex NA) Index”). The IDOGX methodology selects the five stocks in each of the ten GICS sectors that make up the universe which offer the highest dividend yields as of the last trading day of November. The fifty stocks that are selected for inclusion in the portfolio are equally weighted. 

S&P 500 Index: widely regarded as the best single gauge of large-cap US equities. The index includes 500 leading companies and covers approximately 80% of available market capitalization. 

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ALPS Portfolio Solutions Distributor, Inc. is the distributor for the Fund.

Not FDIC Insured • No Bank Guarantee • May Lose Value    

DOG001337  10/31/2023